RISK MANAGEMENT IN CONSTRUCTION
PROJECTS IN GAZA STRIP
BETWEEN INTHE PERIOD 2006 – 2015
A THESIS SUBMITTED TO THE GRADUATE
SCHOOL OF APPLIED SCIENCES
OF
NEAR EAST UNIVERSITY
By
NADER AL AGHA
In Partial Fulfillment of the Requirements for
the Degree of Master of Science
in
Civil Engineering
NICOSIA, 2017
RIS K M ANAG E M E N T I N CO NS T RU CT IO N P RO J E CT S I N G AZ A S T RIP B E T W E E N T H E P E RIOD 2 0 0 6 -2 0 1 5 NE U NADER A L AG H A 2 0 1 7 MO H A M MAD A B A Z ID 201 7RISK MANAGEMENT IN CONSTRUCTION
PROJECTS IN GAZA STRIP
BETWEEN INTHE PERIOD 2006 – 2015
A THESIS SUBMITTED TO THE GRADUATE
SCHOOL OF APPLIED SCIENCES
OF
NEAR EAST UNIVERSITY
By
NADER AL AGHA
In Partial Fulfillment of the Requirements for
the Degree of Master of Science
in
Civil Engineering
Nader Al Agha: RISK MANAGEMENT IN CONSTRUCTION PROJECTS IN GAZA STRIP BETWEEN INTHE PERIOD 2006 – 2015
Approval of Director of Graduate School of Applied Sciences
Prof. Dr. Nadire Çavuş
We certify that, this thesis is satisfactory for the award of the degree of Master of Science In Civil Engineering
Examining Committee in Charge:
Assist. Prof. Dr. Burhan Yıldız Department of Civil Engineering Cyprus international University
Assist. Prof. Dr. Fatemeh Noaban Department of Civil Engineering Near East University
Prof. Dr. Ata Atun Supervisor, Department of Civil Engineering Near East University
I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work.
Name, Last name: Nader Al Agha Signature:
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ACKNOWLEDGEMENTS
Firstly, I would like to express my sincere gratitude and appreciation to my supervisor Prof. Dr. Ata Atun for the continuous support of my MSc. Study. In addition to the related research for his overseeing this thesis, patience, motivation, and immense knowledge for which I had the pleasure of being mentored as a pupil under his care and encouragement.
Besides my supervisor, I would like to thank the rest of my thesis committee; Assist. Prof. Dr. Fatemeh Noaban, Prof. Dr. Kabir Sadeghi, Assist.. Prof. Dr.
Burhan Yıldız and Near East University, Civil Engineering Department academic staff, for their hard work in caring for students and for providing all the services and facilities that students need to complete their higher education.
For my many friends that have helped me through these years, I greatly value their friendship and I deeply appreciate their belief in me.
Lastly, but most definitely not least, I would like to thank my family for supporting me spiritually, morally throughout writing this thesis and my life in general.
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To My Parents…
ABSTRACT
The study aimed at identifying the risks that may be encountered during buildings construction projects in Gaza. The researcher followed both descriptive and analytical approach in order to achieve the objectives of the study through illustrating the study subject, analyzing the collected data and demonstrating the relationship between its main components and the
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opinions which were gathered in relation to the operations involved and the impact of the results attained. This methodology is considered to be one of the technical and analytical methods to explain a certain phenomenon or problem and describing it quantitatively. This was done through accurate data gathering, classification and analysis after subjecting it to meticulous evaluation. The study relied on the data collected from 120 building construction projects which were under the supervision of the Contractors Union in Gaza. A questionnaire was distributed to the owners of some projects, Contractors, suppliers and clients in Gaza strip. A total of 160 questionnaires were processed identifying only 120 suitable ones by excluding 40 questionnaires (25% of the total). These questionnaires results were used as the main support for the study. The questionnaires contained a wide range of subject areas and components.
The study reached a set of recommendations; some of the more important ones can be summarized as follows: use should be made of the experiences gathered from surrounding countries in the area of construction of projects, particularly the subject of risks management in order to mitigate such risks through holding annual technical conferences to exchange views about risk management, their impediments and the methods used to mitigate them. All this should be done taking into account quality, importance and impact of the project. In addition, the quality of Engineering Design should be attained through Consultancy offices ensuring that a design review is performed by a third party to assure design quality. A team should be formed to manage the risk with all needed resources (manpower and financial) with all necessary authorization that enables them to address risks. This team should be fully qualified academically and technically and to receive all necessary training in order to perform its duties effectively. Continuous and periodic review should be performed through conducting periodic tests in order to establish the efficiency, effectiveness of the construction projects.
Keywords: Gaza strip, risk management, efficiency, effective, construction
ÖZET
Bu çalışma, Gazze şeridindeki inşaat projelerinde risk yönetimini tespit etmek için yapılmıştır. Araştırmacı, çalışmanın hedeflerine ulaşmak için açıklayıcı ve analitik bir yaklaşım kullanmıştır. Ayrıca, verileri tanımlamak ve hakkındaki parça, görüşler ve prosesler arasındaki ilişki beyanını açıklamaktır. Bu, bir fenomen ya da spesifik bir problemi tanımlamak için
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bilimsel organizatörlerin analiz ve yorumu şeklinde olan etkileri içerir. Bu ayrıca, sınıflandırılan, analiz edilen ve çalışmanın her detayına tabi tutulan fenomen ya da problemin bilgi ve verilerini toplayarak alınan ölçümleri kaydetmeyi içerir. Bu çalışma, çalışma örnekleminin bazı projelerin sahipleri, Gazze şeridindeki yükleniciler, tedarikçiler ve müşteri olarak dağıldığı, 160 anketten 120’sini tespit etmek için işleme alınmış anketlerin verildiği, Gazze şeridi müteahhitler birliğinde faaliyet gösteren 120 inşaat projesidir. Çalışma araştırmacının anket formunu çalışma için bir araç olarak kullandığı, toplamın %25’i olan 40 anket dahil edilmemiştir. Ayrıca, anketlerde, bir dizi eksen ve paragraf bulunmuştur.
Çalışma, riskle nasıl başa çıkılacağını ve risk yönetimi üzerine yıllık bilimsel konferanslar düzenlemeyi içeren, projelerin inşaatında çevre ülkelerin deneyimlerinden avantajları içeren bir dizi tavsiye bulmuştur. Bu, karşılaşılan riskin yönetilmesiyle ilgili engelleri ve inşaat projelerindeki riski karşılamak için izlenen değerlendirme metot ve araçlarıyla ilgili engelleri ele almak, ayrıca, projenin önem ve etkisine ek olarak kalite faktörünü dikkate almak ve danışmanlık ofislerinde kaliteyi yakalamak ve tasarımcılar dışında diğer ekip tarafından neyin kontrol edilmesinin gerektiğini teyit etmek için mühendislik tasarım sistemlerini uygulamak ve bilimsel ve teknik olarak eğitimli ve kalifiye olmalarını sağlarken, riskle başa çıkmalarını sağlamak için tüm gereken yetkileri vermektir. Bunlar, bu inşaat projelerinin verimlilik ve etkinliği için testleri gerçekleştirerek risk yönetim denetimleri için işlevleri etkin şekilde gerçekleştirmeli ve sürekli periyodik programlar üzerinde çalışmalıdır
Anahtar kelimeler: Gazze şeridi, risk yönetimi, verimlilik, etkin, inşaat
TABLE OF CONTENTS
ACKNOWLEDGEMENTS ... i
v ÖZET ... iii TABLE OF CONTENTS ... iv LIST OF FIGURES ... ix LIST OF TABLES ... xi CHAPTER 1: INTRODUCTION 1. Introduction ... 1
1.1. Research Importance and General Objectives ... 2
1.1.1. Importance of Research ... 2 1.1.1.1. Scientifically ... 2 1.1.1.2. Practicality ... 2 1.1.2. General Objectives ... 3 1.2. Research Questions ... 4 1.3. Hypotheses ... 4 1.3.1. Main Hypothesis ... 4 1.3.2. Sub-Hypotheses ... 4 1.4. Research Methodology ... 5 1.4.1. Introduction ... 5
1.4.2. The Methodology of the Study... 5
1.4.3. Research Location ... 5
1.4.4. Population of the Study ... 6
1.4.5. The Study Sample ... 6
1.4.6. Study Tool ... 6
1.4.6.1. The Main Data (Preliminary) ... 6
1.4.6.2. Secondary Data ... 6
vi
1.6. Theoretical Approach ... 14
1.6.1 Qualitative Approach Through: ... 14
1.6.2. Quantitative Approach Through: ... 14
CHAPTER 2: HISTORICAL BACKGROUND 2.1. Palestinian Contractors Union ... 15
2.2. Definition of the Contracting Sector ... 15
2.3. Contracting Definition ... 16
2.4. Career of the Contractor ... 17
2.5. Support Sector of Construction Projects ... 17
2.6. The Basic Features of the Mechanisms in Construction ... 18
2.6.1. Great Diversity ... 18
2.6.2. Time Factor ... 18
2.6.3. Technical Specifications ... 19
2.6.4. Projects Cost ... 19
2.6.5. The Legal Conditions ... 19
2.7. Rating Role in Improving the Performance and Mastery of Work ... 19
2.8. Historical Stages of the Construction Sector ... 20
2.8.1. Construction Sector in 1968 - 1993... 20
2.8.2. Construction Sector in the Period During 1993 - 2000 ... 21
2.8.3. Construction Sector in the Period During 2000 - 2003 ... 21
2.9. Risk in the Companies ... 22
2.10. Reasons of Risks in Companies ... 23
2.11. Kinds of Risk in Construction Projects ... 24
2.11.1. Risk Management ... 24
2.11.2. Financial Risk ... 24
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2.11.4. Technical and Productivity Risk ... 25
2.11.5. External Risk ... 25
2.12. Risk of Contracting and Contraction Sector ... 25
2.12.1. Risks of Raw Materials and Equipment ... 26
2.12.2. Risk Because of the Israeli Authorities ... 26
2.12.3. Economic Risk ... 26
2.12.4. Administrative Risks ... 27
2.12.5. Risk of Unemployment Programs ... 28
2.12.6. Risk in Skilled Workers ... 29
2.13. Solutions for Risk Management in Construction Projects ... 30
2.13.1. Pressing Demands for Contractors ... 30
2.13.2. Developing the Relationship between the Engineer and the Contractor ... 31
CHAPTER 3: RISK MANAGEMENT IN CONSTRUCTION PROJECTS 3.1. Introduction ... 32
3.2. Types of Construction Projects ... 32
3.3. Risk Management Stages ... 33
3.4. Risk Management in Construction Projects ... 33
3.5. Managing Risks in Construction Projects ... 34
3.6. What the Risks are in Projects? ... 34
3.7. Analysis and Management of Project Risks ... 34
3.8. Risk Analysis (Risk Measurement) ... 34
3.9. Risk Management ... 35
3.10. Risk Management in Construction Projects ... 35
3.11. The Benefits of Application of Analysis and Risk Management ... 35
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3.13. Required Cost to Analysis and Risk Management ... 36
3.14. The Use of Analysis and Risk Management in the Project ... 37
3.15. Risks Related to the Team Work ... 37
3.16. Risks Related to the Owner of the Project ... 38
3.17. Characteristics of Building Size and Its Advantages in the Project ... 39
3.18. Types of Construction Projects ... 41
3.19. Legal Forms of Construction Projects ... 41
3.20. Definition of Risk Management ... 41
3.21. Risk Classification ... 42
3.22. Risk Management ... 44
3.23. Stages of Risk Management ... 44
3.24. Risk Management in Administration ... 44
3.25. Legal Mistakes in the Specification ... 46
3.26. Legal Mistakes in Measurement Units Approved in the Specification ... 47
3.27. Legal Claims Related to the Characterization of the Implementation of Technology and Safety Requirements ... 48
3.28. Claims Due to the Mistakes in Appraisal Price or Cost ... 49
3.29. Claims Due to Mistakes in Quantities ... 49
3.29.1. Claims for the Owner Originating from the Consulting Supervising Engineer ... 49
3.29.2. Claims of the Contractor from the Supervising Engineer ... 50
3.30. The Obstacles Caused by the Israeli Authorities Policy ... 50
3.30.1. Legal Obstacles in the Financing of Construction Projects ... 51
3.30.2. The Legal Obstacles Related to the Market ... 51
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4.1. Validity and Reliability Study Tool (Questionnaire) ... 53
4.2. Trust in Internal Consistency ... 53
4.3. Results of Study Axes ... 53
4.4. Reliability of Study Tool (Questionnaire) ... 59
4.5. Statistical Methods Used ... 61
4.6. Data Analysis and Test Hypothesis ... 61
4.7. Results of the Study Analysis ... 67
CHAPTER 5: CONCLUSION and RECOMMENDATIONS 5.1. Conclusion ... 90
5.2. Recommendations ... 93
REFERENCES ... 96
APPENDIX: Questionnaire Survey ... 102
LIST OF FIGURES
Figure 1.1: Research methodology………..……….………..7x Figure 3.1: The relationship between risk, profit and loss………...………….………….42
Figure 3.2: Risk in construction projects………..………43 Figure 4.1: Distribution of the study sample according to duration of
projects…….………...62
Figure 4.2: Distribution of the study sample according to type of projects………….……..…63
Figure 4.3: The study sample distribution according to geographic region………….….……65
Figure 4.4: The study sample distribution according to quality of projects………...…...67
Figure 4.5: Arithmetic mean of paragraphs of first axis related to sub hypothesis (1)……....71 Figure 4.6: Arithmetic mean of paragraphs of second axis related to sub hypothesis
(2)…...73
Figure 4.7: Arithmetic mean of paragraphs of third axis related to sub hypothesis (3)…..…...76
Figure 4.8: Arithmetic mean of paragraphs of fourth axis related to sub hypothesis (4)…...78
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LIST OF TABLES
Table 4. 1: Pearson correlation coefficients for the paragraphs of the first axis ... 54
Table 4.2: Pearson correlation coefficients for the paragraphs of the second axis... 55
Table 4.3: Pearson correlation coefficients for the paragraphs of the third axis ... 56
Table 4.4: Pearson correlation coefficients for the paragraphs of the fourth axis ... 58
Table 4.5: The results of Split-half method for the axes of questionnaire ... 59
Table 4.6: The results of Cronbach’s Alpha coefficients method for the axes of the questionnaire ... 60
Table 4.7: Distribution of the study sample according to duration of projects ... 61
Table 4.8: Distribution of the study sample according to type of projects ... 63
Table 4.9: Distribution of the study sample according to Geographical regions ... 64
Table 4.10: The study sample distribution according to the quality of the project ... 66
Table 4.11: The values of budget, quality and occupational safety in construction projects ... 68
Table 4.12: Results of the first axis according to repetition and arithmetic mean standard deviation and relative weight ... 70
Table 4.13: Results of the second axis according to repetition and arithmetic mean standard deviation and relative weight ... 72
Table 4.14: Results of the third axis according to repetition and arithmetic mean standard deviation and relative weight ... 75
Table 4.15: Results of the fourth axis according to repetition and arithmetic mean standard deviation and relative weight ... 77
Table 4.16: Actual and expected obstacles and challenges as a result of risk management in construction projects ... 79
Table 4.17: The values of source of variation, sum of squares, degree of freedom, F and p- value (Sig), according to duration variable of projects ... 84
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Table 4.18: The values of source of variation, sum of squares, degree of freedom, F and p- value (Sig), according to the variable of project type ... 86 Table 4.19: The values of source of variation, sum of squares, degree of freedom, F and p-
1 CHAPTER 1 INTRODUCTION
1. Introduction
Construction projects in the 21st century are facing a large number of variables that demand them to think about the future. This situation is what compels construction companies to adapt, respond and achieve progress or to retreat. The organization would have no way but to adjust and adapt to these changes and that’s if they, themselves wanted to survive, progress and improve their overall performance. Otherwise, when they face the construction projects in the 21st century, both internal and external challenges will result in multiple risks. These risks may or may not include political, legislatorial, structural or of an environmental nature dependent on the situation. This is because of the large changes in the internal and external environment in which it operates.
A concept of risk management in construction projects from a widespread model in contemporary societies occur in all kinds of investment projects. This is due to the potential risk of occurrence but never-ending. Any organization, whatever the power of their budgets it can’t plan for every possible emergency. Therefore the situation calls for and requires giving adequate attention to the dimensions of the basic elements for selecting subsidized management knowledge and experience, which would undoubtedly affect the degree of readiness of the organization to cope with the risk.
2 1.1. Research Importance and General Objectives 1.1.1. Importance of Research
Taking into consideration the Palestinian territories in general and Gaza strip in detail, it’s a fertile ground for construction projects with the essentials of construction projects in particular, as a result of suffering years of siege. This is because of the risk, tragedies, wars and deprivations of the most basic rights, which in turn led to the impoverishment of a permanent and large segment of Palestinian people.
1.1.1.1. Scientifically
Through private research sources, the researcher found that the causes stem from the first empirical attempts in Gaza strip which aimed to identify the role of risk management in construction projects in Gaza strip.
The reason is the lack of local research and literary sources that specialize in this area in Gaza strip. This research will be an important reference for researchers and for people who are interested in this area.
1.1.1.2. Practicality
The construction projects in Gaza strip were damaged during the war on Gaza strip in 2014. This was a loss estimated at $58.7 million, where the damages were centered on the biggest major construction projects, assets, and associated facilities as they were the most affected by the consequences of the aggression.
Through this research, it will be possible for construction projects in Gaza strip to have numerous probabilities for the scopes of risk management.
Find out how to reduce the risks in the construction projects in Gaza strip
To draw the attention of construction projects currently in Gaza strip to the importance of risk management in construction because of the impact on both the local and regional level.
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Providing scientific and practical recommendation for construction projects to help identify the risks in construction projects.
The study of the nature of the program design and the nature of the interventions throughout a construction project.
This study will prepare a basic reference for most of the construction projects and donors working in Gaza strip.
This study provides a new perspective for researchers and workers who have a relationship in an in-depth study which will be of great importance as a reference for researchers and any interested parties.
1.1.2. General Objectives
From the framework of the research problem, the main objective of this research is to identify the risks in construction projects in Gaza strip, in addition to achieving following objectives:
1. To shed light on the mechanisms, policies, and procedure to reduce the risk in construction projects in Gaza strip.
2. To clarify the safeguards and standards that must be followed to reduce risk in construction projects in Gaza strip.
3. In identifying the obstacles, actual and anticipated challenges to reduce risk in the construction projects in Gaza strip.
4. The identification of the strategies proposed for decision makers to reduce risk in construction projects in Gaza strip.
5. A statement relating to the required facilities to be used to reduce the risk in construction projects in Gaza strip.
6. In determining the differences between the averages workers response regarding the role of risk management in construction projects in Gaza.
7. To propose a set of recommendations that contribute to the efficiency and effectiveness of risk management to the municipalities in reducing the major risks involved in construction projects in Gaza strip.
4 1.2. Research Questions
1. What risk management in construction projects in Gaza strip: a case study of the construction projects during the period 2006 – 2015?
2. What are the methods, mechanisms, policies and procedures followed by the construction projects in Gaza strip?
3. What are the safeguards and standards that are followed for risk management in construction projects in Gaza strip?
4. What the most important strategies proposed to decision makers for the risk management in construction projects in Gaza strip?
5. What the required facilities used for the management of risks in construction projects in Gaza Strip?
6. What are the actual and expected obstacles and challenges of conducting risk management in construction projects in Gaza strip?
7. What are the differences in the sample estimates of risks in construction projects in Gaza strip according to the variables (Duration, Project Type, and Geographical Area)?
1.3. Hypotheses
From the reality of the problem study and its questions, including the objectives, we can formulate a set of hypotheses searchable as follows:
1.3.1. Main Hypothesis
There’s a statistically significant relationship between constraints that cause risk in construction projects in Gaza strip.
1.3.2. Sub-Hypotheses
1. There’s a statistically significant relationship between averages of the sample members and the methods, mechanisms, policies, procedures followed and risk management in construction projects in Gaza strip.
2. There’s a statistically significant relationship between averages of the sample members and the safeguards and standards that are followed and risk management in construction projects in Gaza strip.
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3. There’s a statistically significant relationship between averages of the sample members and the proposed strategies for decision makers and risk management in construction projects in Gaza strip.
4. There’s a statistically significant relationship between averages of the sample members and required facilities used and risk management in construction projects in Gaza strip. 5. There’s a statistically significant relationship between averages of the sample members
the actual and expected obstacles and challenges and risk management in construction projects in Gaza strip.
6. An estimate of responses vary regarding the risk in construction projects in Gaza strip depending on variables (Duration, Project Type, Geographic Area).
1.4. Research Methodology 1.4.1. Introduction
This part deals with a detailed description of the procedures followed by the researcher in the implementation of the study. The definition of the case study, the methodology and description of the population of the study to identify the study sample and the study tools (questionnaire) which will ensure its authenticity as well as the statement of the conduct of the study including the statistical methods used in the treatment of the result.
1.4.2. The Methodology of the Study
In order to achieve the objectives of the study, the researcher used a descriptive and analytical approach which tries to describe the phenomenon under the study, analyze the data and provide a statement of the relationship between the components and their views around the process. This included the effects of which it is a form of scientific analysis and its interpretation to describe the phenomenon or a specific problem as well as the records measured. This was done by collecting data and information classified as a phenomenon or problem and rated to be analyzed and subjected to the study.
1.4.3. Research Location
The research was carried out in Gaza strip, which consists of five governorates; the North, Gaza, the Middle, Khan-Younus and Rafah. These five areas are considered the southern territories of Palestinian National Authority.
6 1.4.4. Population of the Study
The study consisted of 120 construction projects, which operates within the contractors union of Gaza strip, in which the study sample was distributed to the owners of some projects, contractors, suppliers and clients in Gaza strip.
1.4.5. The Study Sample
The study sample received the questionnaires that have been processed to identify 120 out of 160. The excluded questionnaires were 40 questionnaires in total which numbered to 25%.
1.4.6. Study Tool
The researcher used the questionnaire as a tool for the study which included the questionnaire on a range of themes and paragraphs. This shows the degree of approval of the paragraphs according to a five grading scale, determining the degree of approval (Agree, Strongly agree, Natural, Disagree, Strongly disagree) and therefore are given grades (1, 2, 3, 4, 5) respectively. The questionnaire is made up of 4 axes of which, the first axis is political mechanisms and procedures for risk management. It consists of one of the seven paragraphs of which, the second axis represents the safeguards and standards needed to manage risks as well as one of the seven paragraphs whilst third axis is of strategies for risk management. Also of the proposed methods of risk management, the fourth axis is the theme which facilities are required to be used to manage risks and is one of the seven paragraphs. These four axes are the sum of the total number of paragraphs in the questionnaire (28) paragraph. Moreover, the data sources in this study are divided into two types namely:
1.4.6.1. The Main Data (Preliminary)
It is data that has been collected using the survey tool (questionnaire), which was specifically designed to identify risks relevant to risk management in construction projects in Gaza strip.
1.4.6.2. Secondary Data
This is represented in literary form, in which is included in libraries of studies, research books and reference in the field of research. Moreover the questionnaire is used as further sustenance for the study which included a range of themes and paragraphs showing a degree of consent according to a 5 digit grading scale of approval (Strongly agree, Agree, Natural, Disagree, Strongly disagree).
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Figure 1.1: Research methodology Stability and realistic
the questionnaire The veracity of
questionnaire Experimental sample
Conclusion and recommendation Results and discussion Collection the questionnaire and
analysis the statements
An interview with the experts
Distribution of a questionnaire Design of a questionnaire Field survey to identify the
principal axes Basics review Research plan Definition of the problem Establish goal Writing thesis proposal
Selection table
8 1.5. Literature Review
1.5.1. Literature Survey on Risk Identification Considering Cause and Effect Relations In literature, the word “risk” is used in different meanings with different words such as hazard or uncertainty (Al-Bahar and Crandall, 1990). Jannadi and Almishari (2003) defined risk as a combination of the probability, the severity, and the exposure of all hazards of an activity. Chapman (2001) accepted risk as the “likelihood of occurrence and the degree of impact of a negative event adversely affecting an activity”. Barber (2005) defined risk as “a threat to project success, where the final impact upon project success is not certain”. As will be introduced in further sections of the paper, in this study risk-related factors are categorized into vulnerability factors, risk sources, risk events and risk consequences, according to their places within the risk paths.
Risk identification is the first step of risk management process, in which potential risks associated with a construction projects are identified (Zou et al. 2007; Akinci and Fischer, 1998). Within literature, several checklists and risk breakdown structures were suggested to identify and classify potential risks which have probability to have adverse effect on project objectives. Azhar et al. (2008) identified 42 cost overrun factors and arranged them into three categories: macro economic factors, management factors, business and regulatory environment. Assaf and Al-Heiji (2006) investigated 73 causes of delays construction projects in Saudi Arabia. Abd El-Razek et al. (2008), proposed 32 causes of delays of construction project in Egypt. Enhassi et al. (2009) suggested 110 delay factors/causes, which were classified into 12 groups, resulting into time overruns and cost overruns in construction projects in the Gaza strip. Aibinu and Odeyinka (2006) identified 44 delay factors related with the client, quantity surveyor, architect, structural engineer, services engineer, contractor, subcontractor, supplier and external factors. Perry and Hayes (1985) identified 29 primary sources of risks in a construction project associated into 9 risk groups: physical, environmental, design, logistics, financial, legal, political, construction and operation.
Chan and Kumaraswamy (1996) identified 83 factors that may cause time delays in Hong Kong construction projects and classified them into eight categories; project-related,
client-9
related, design team-related, contractor-related, materials, labor, plant and equipment and external factors. Long et al. (2004) presented 62 risk factors in large construction projects in Vietnam related with the financier, owner, contractor, consultant, project attributes, coordination and environment problems. Mustafa and Al-Bahar (1991) identified 32 risks in construction projects and classified them into six groups: acts of god, physical, financial and economical, design and job site-related risks.
Although these checklists, help decision-makers to identify potential risk factors; they “stay at a simple level of details, such as just listing the risks to limit the quantification and prioritization of interrelated risks” (Han et al., 2008) and underemphasize the importance of interdependencies among them (Ward, 1999). On the other hand, identifying risks as individual factors and neglecting the sequences of their occurrence and cause-effect relations will not be a realistic approach. (Eybpoosh et al. 2011). Within this context, authors such as Chapman (2001), Kim et al. (2009), Ashley and Bonner (1987), Dikmen et al. (2007) have discussed the necessity of consideration of risk interdependencies among.
Chapman (2001) proposed studying risk relationships by classifying them as, dependent risks in series and independent risks in parallel and suggested precedence, influence diagrams, knowledge maps or flow charts to represent these relationships. The study of Chapman (2001) is one of the important contributions examining cause-effect relations among risks, risk paths generated from these relationships and graphical representation of these paths. Additionally, Han et al. (2008) analyzed the causality between risk variables, sorted them as risk sources (causes) and events with respect to their hierarchical order and constructed series of risk paths from its source to event, to corporate a scenario-based risk checklist. Ashley and Bonner (1987) utilized influence diagrams to represent interrelationships between macro risks (political source variables) and micro risks (project consequence variables) and their either direct or indirect affect on project cash flow variables (cost of labor, material, overhead costs and project revenues).
Akinci and Fischer (1998) used knowledge maps for demonstration of relationships among uncontrollable risk factors (i.e. economic factors, political risk factors, client related factors and subcontractor related factors) and cost overrun variables (i.e. unit cost, estimated quantity,
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and final unit cost). To assess the cost overrun risk rating of an international construction project, Dikmen et al. (2007) incorporated influence diagramming and fuzzy risk rating approach for risk identification and risk assessment purposes. Authors used influence diagrams for representation of hierarchical order and interactions of major sources of country and project risks that relates cost overrun.
1.5.2. Risk Management in Construction Projects from Contractors and Owners in Gaza strip, Eng. Jaser Abu Mousa (2005)
In this paper the main objective is to gain understanding of risk factors that could be in front of building projects in Gaza strip. The study aims also to investigate the effectiveness of risk preventive and mitigation methods. Moreover, the usage of risk analysis techniques is addressed. The objectives of this research have been achieved through a comparative study of closed-ended questionnaires with interviews and a case study in Gaza strip. The results concluded that the most important risk factors are: financial failure of the contractor, working at hot (dangerous) areas, closure, defective design and delayed payments on contract. On the other hand, owner respondents concluded that the most important risk factors are: awarding the design to unqualified designer, Defective design, Occurrence of accidents, Difficulty to access the site, inaccurate quantities.
1.5.3. Risk Analysis in Construction Projects in Gaza strip "Contractor's Perspective", Kotb, M., & Abdullah, M. (2014)
The aim of this paper is to investigate risk analysis techniques used to analyze risks in construction projects in Gaza strip. The findings of this research indicate that the most important risk analysis techniques that contractors use to analyze risk factors to better manage risks of construction projects at the bidding cost estimate stage, are the following: comparative analysis (analyze similar projects), direct judgment using experience, action plan (scenario) analysis with project details, probability analysis using historical data, descriptive analysis, sensitivity analysis and simulation analysis using software programs. The results of this research recommended to the contractors are to select the optimal risk analysis technique to analyze and estimate risks properly and to determine the convenient preventive method to respond risk effects early, at the pricing stage of construction project.
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This study has successfully detected the most significant risk analysis techniques to analyze risks in construction projects in Palestine, The findings of this research indicate that the most important risk analysis techniques that contractors use to analyze risk factors to better manage risks of construction projects at the bidding cost estimate stage, are the following:
1. Comparative analysis (analyze similar projects) as the 1st option. 2. Direct judgment using experience as the 2nd option.
3. Action plan (scenario) analysis with project details as the 3rd option. 4. Probability analysis using historical data as the 4th option.
5. Descriptive analysis as the 5th option. 6. Sensitivity analysis as the 6th option
7. Simulation analysis using software programs as the 7th option.
The results of this research recommended contractors to select and use which of the previous risk analysis techniques as the optimal and proper technique, to analyze and estimate risks properly and to determine the convenient preventive method to respond risk effects early, at the pricing stage of construction project.
1.5.4. Risk Management in Building Projects in Palestine: Contractors’ Perspective, Enshassi, A., Mohamed, S. and Abu Mosa, J. (2008)
The construction industry is widely associated with a high degree of risk and uncertainty due to the nature of its operating environment. This research study seeks to identify and evaluate key risk factors and their preventive and mitigating measures in building projects in Palestine. It also seeks to investigate the severity and allocation of each identified risk factor according to the contractors’ perspective. A questionnaire survey was conducted and a total of forty-four critical risk factors were identified and categorized into nine groups. Research findings identify financial failure of the contractor to be the most important risk factor followed closely by two factors namely, working in dangerous areas and border closure. The results also indicate that close supervision is seen as the most effective risk mitigating method. The paper recommends that contracting companies should identify and adequately quantify project risk factors. Adding a risk premium to quotation and time estimation has to be supported by governmental owner organizations and other agencies in the local construction sector.
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Training courses should also be provided to construction professionals on how to deal with and minimize risks in building projects.
Forty four critical risk factors were identified and categorized into nine groups: physical, environmental, design, logistics, financial, legal, management, political, and construction. The top ten sever risk factors according to the current views of contractors.
It is recommended that contracting companies should compute and consider risk factors by adding a risk premium to quotation and time estimation. This trend has to be supported by governmental owner organizations and other agencies in the construction sector. Training courses should also be provided for engineers and project managers on how to deal and minimize risks in building projects. Contractors should endeavor to prevent financial failure by practicing a stern cash flow management and minimizing the dependence on bank loans. Contractors should learn how to share and shift different risks by hiring specialized staff or specialized sub-contractors.
Through the Showing of the previous studies, the researcher can summarize the risks in construction projects in Gaza strip as:
The encountered construction projects in Gaza strip during the past ten years, from 2006 to 2015, have decreased in their budgets by 31%as a result of the ongoing conflict in the region and the Palestinian division, and the economic fluctuation, In addition the Israeli siege and attacks that led to a significant loss of assets and property in construction projects. It is due to these reasons that majorly impact the ability to provide services to the citizens.
There are obstacles to construction projects, including the economical financial constraints, low revenues and limited municipals revenues in Gaza strip, this leads to the reliance on external financing. The obstacles of administrative and political risk due to the Israeli authorities practices and targeting the infrastructure of Palestinian society as well as the reality of division and blockade, which greatly impacts negatively on development projects in Gaza strip.
The existence of legal loopholes in the laws and regulations governing the work of the construction projects and constitute a barrier to development and from which some of
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the infiltration and exploitation of corruption and because of the aging of the laws that govern the operation of the projects in Gaza strip.
Facing construction project in Palestine are significant challenges which impose considerable pressure to adapt to these conditions and meet those challenges that affect the performance of the projects, therefore the projects need to focus on the numerous risks involved.
Construction projects in Palestine face very significant challenges, especially during the war on Gaza strip in mid-2014, and what faced all management and service crews in these projects from successive risk significantly influenced the assets and property. Whether financially or human capacities-wise and is reflected in the performance of their employees and the performance overall in general.
Lack of construction projects for the management information system in addition to the weakness of project staff capabilities on how to deal with this system.
Not having construction projects in Gaza strip for an effective strategy to recruit the funds and marketing of project proposals submitted to serve the citizens as well as the weakness of the diversification of sources of funding for construction projects.
Construction projects don't measure the impact of projects that offered in addition to failing to set targets and measurable indicators for projects.
Absence of evidence procedures at construction projects in Gaza strip.
Non-Matching of the organizational structure and job description with the strategic construction projects in Gaza strip.
Lack of activation of the neighborhood committees and weak community participation in construction projects.
14 1.6. Theoretical Approach
1.6.1 Qualitative Approach Through:
The style used by the researcher in interviews to collect preliminary data.
Access to preliminary data to achieve the objectives of the research.
Identifying the role of risk management in construction projects.
Definition of risk management.
Risk classification.
Risk management and its stages.
Risk management in construction projects.
Analyzing and managing project risks.
The benefits of the application of analysis and risk management.
Risks related to the entrepreneur.
The financial difficulty for contractors or suppliers.
The properties of construction projects, size and characteristics.
1.6.2. Quantitative Approach Through:
The use of a complementary questionnaire as a key to search for relevant data.
Drafting and preparation of the questionnaire to collect data necessary to serve the purpose of the research sample after testing the reliability and validity of the questionnaire.
Applying the questionnaire on an exploratory sample of (30) from the population of the study.
15 CHAPTER 2
HISTORICAL BACKGROUND
2.1. Palestinian Contractors Union
The Palestinian contractors union is a Palestinian institution that is a social, non- profit organization with a membership representing a total of merely the local contractors and classified in the contractors union. It aims to regulate the practice of contracting in Palestine and improve the performance of contractors and protect their interests. Moreover, the union plays a positive role in the national economic development of the country, the Palestinian contractors union is considered as a representative of the main construction sector in Palestine and the backbone of Palestinian construction.
The contractors union was founded in 1994 as a non – profit organization based on membership and registered with the relevant government development. It is considered the ‘central nucleus’ in the development of the Palestinian construction sector and is best placed to represent this sector which reflects the future image of the importance of the Palestinian constructions sector. The contractors union seeks to achieve the objectives for which it was found, which can be a source of information and knowledge as well as the starting point to keep up with the qualitative and global development in construction technology.
Construction sector considers of the economic sectors and one of the important Palestinian national economy engines and this sector has been a widening remarkably. It has been active since the return of the Palestinian national authority to the Palestinian territories in 1994, which led to the revival of the careers in construction and supporting industries have encouraged investment in the local construction industry, helping create jobs for thousands of Palestinians. The importance of this sector has grown remarkably as a result of its role in construction and rehabilitation of roads and infrastructure in light of the continued siege and Israeli aggression (Activities guide of Palestinian contractors union, 2010).
2.2. Definition of the Contracting Sector
Contracting like other professions are constantly evolving, with the development of science and technology, in a profession where the principles and rules are imposed on those who
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practice compliance with these foundations and take action in order to ensure the progress, success, and profit. Contractors are basically complementary profession and inherent to the engineering profession to being a scientific translator in all actions on earth for all engineering ideas and projects intended to be implemented. Contracting is the science and art of management which is not as some think as a risky adventure process, which has uncalculated results and the luck plays the first role in which, it requires a sustained and sophisticated effort continues in full and a commitment to scientific principles through to fruition and bring the contractor materially profit, and the moral reputation that add to the vocational tally. The more committed the contractor to apply the principles and engineering results result in his successful and satisfying objectives in the contracting business. At present many difficulties arise as a result of scientific and technical progress and the requirements of society and its development as well as the complexities of the means of financing. These difficulties necessitate absolute rejection to the adoption of the theory that was called the awarding of categories business, which is prevalent since the launch of the first of the works of construction where the entrepreneur is the one which assigns each of the carpenter and mourning tiles, electro and others, for each of these the implementation of business- related work without there being any prior coordination between feigned group or businesses. (Mazboudi, 2003).
2.3. Contracting Definition
The construction sector did not pass in Palestine under normal conditions such as those that operate in the construction sector in many free-to-develop countries in this world, as a result of the occupation as no one can deny the impact of these circumstances in one way or another on the economic situation in Palestine, but in spite of these limitations the construction sector was able to adapt to these conditions as it was not seen to this situation as force (Rustam, 2004). The cruelty of the measures that have risen because of the Israeli siege on Gaza since the Jerusalem uprising that added new obstacles tougher than all of those that existed in the past. Therefore it was necessary to discuss this situation individually to demonstrate how to help contractors survive to overcome these measures and in order to not fall apart and abolish the constructions sector (Atallah, 2005).
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It has even launched the term ‘contracting business’ in which a contractor is needed to contract with the employer to be implemented, which is often a part of the recipe in construction, which the contractor makes some calls and arrangements for the work required in the construction, according to the provisions of their contract (Levy, 2002).
The word ‘contraction’ in English originally stems from ‘contracted’ which are derived from the word contract meaning “an order with similar exchange”. In a business description it is “the specification, requirements, obligations, rates and the like between the two parties, to contract any employer on one hand and the contractor or obligor (the part for business offered by the specific conditions for the sum of money paid by the first of the second, upon completion of the work (Atallah, 2005).
2.4. Career of the Contractor
According to the statutes of the aforementioned Union, any work to create buildings, roads, construction and projects of construction of various kinds as well as the operation and maintenance requires a contractor to be a member of the Union and is registered with the federation of Palestinian contractors in addition to obtaining the degree classifications according to specific criteria in the instructions classification of contractors and supervised by the National Commission of classification.
The number of registered contractors in the Federation of Palestinian contractors according to the latest statistic in July 2007, consist of 1183 contractor in various Palestinian towns and villages and the number of registered contractors in the west bank are 843 contractor. While the number of registered contractors in Gaza strip reached 340 contractors, the number of members classified in various Palestinian governorates is (453) contractor until July (252) of them in the West Bank, and (201) contractor in Gaza strip (Activities guide of Palestinian contractors union, 2010).
2.5. Support Sector of Construction Projects
The construction support industries represent a complementary role to the task of the contractor as they are an essential part of the construction industry and even of the construction world. Class industries, it is important that the plant construction takes a significant role and live up to the required level, which opens the way towards penetrating the
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market competition and suppliers of construction materials are: factories mix concrete, asphalt, aluminum, ceramics, stone marble, suppliers of reinforcing steel, bricks, cement and iron and plastic pipes and concrete, as well as suppliers of water supply and sanitation and electrical equipment.
Construction methods of great achievements, the longer they are used and one of the oldest industries known to man as well as the Arab human altar construction techniques openly allowing understanding. Unlike electronics, computing techniques and other such things that have defined the construction industry came in the book of Arab construction industry as an economic activity technician, mainly in all countries regardless of their level of development. This includes those several chains of events are characterized by a tendency for the public sector and its products predominantly which take a long time to plan (Palestinian contractors union, 2003)
2.6. The Basic Features of the Mechanisms in Construction
Specializes in contracting business acting apart from other businesses properties and the ways and methods to deal with the different situation from the rest of the business, This is the supply of some of those features in this section.
2.6.1. Great Diversity
The contracting in projects will vary depending on the type of project, for example, building a house or a hotel, factory or power plant or constructing a bridge or channel. All the works differ from each other in terms of its requirements and it needs, each of which has its own style of implementation varying on the building, requirements, according to the objective of the establishment and extent of services required to be available where the project is divided into several stages of implementation and requirements of each stage, style. These will all vary per project phases with each other works, the nature of each project, and every stage of imposing style and facilities as well as the procedure that must be followed in the implementation (Aljaalok, 1999).
2.6.2. Time Factor
The factor of time in the contracting business work is of great importance because all contracts containing the terms of doing business during a specific period of time are required to be on
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the contractor in the event of bypassing the due date resulting in a pay off fines for the delay(Khudairy, 2003).
2.6.3. Technical Specifications
There is usually general terms and conditions for administrative and financial parts that accompany the book of technical conditions to be adhered to in the implementation of the project. The contractor must adhere to those conditions during the work and that the non-compliance as result of the inability to implement or cost saving or weakness in efficiency resulting in serious refusal bills and fines (Hamalawy, 1997).
2.6.4. ProjectsCost
The proper implementation and completion of the project in terms of time and the required specifications is not enough because the project is successful.
For the contractor, as he is bound to accomplish the project at a cost less than the value of the contract concluded with the employer for this, there must be a pre-study of the project in advance by specialists and practitioners in all the technical, financial and legal aspects (Al-Araji and Dqamsh, 2000).
2.6.5. The Legal Conditions
Acquiring a contract containing an agreed set of legal provisions between the parties of those laws shows the consequences of both parties of the obligations of his own (Aljaalok, 1999). 2.7. Rating Role in Improving the Performance and Mastery of Work
Where to get a classification certificate valid is considered one of the basic conditions to allow the contractor in the competition for the implementation of government projects and because the concept of classification is to give an important indicator of the potential contractor, technical, administrative and decision-making, so it can be summed up by the role of classification in improving the performance of contractors in the following points:
1.
Contractor put in their prospective place, according to different abilities even in doing his job properly and the requirements of the job in order to protect him from a lot of problems.20
2.
The implementation of the projects according to the agreed specifications and in the specified period. This is so that the degree of their classification as a result of reports prepared by the beneficiaries is not affected.3.
The development of administrative and accounting methods as well as the careful organization of work at the site and good performance and adherent to the timetable for the implementation of the business. So as to give a good impression of his abilities as well as being in line with the terms of the classification.4.
Contractors keen to raise their performance and develop their potential so as to be classified in a higher grade, thus eligible to compete in the implementation of large projects that yield good material.5. Providing and developing the necessary technical staff and managing the implementation of projects and ensuring the proper equipment that reflects the capabilities of the contractor and its possibilities (Enabah, 2002).
2.8. Historical Stages of the Construction Sector 2.8.1. Construction Sector in 1968 - 1993
The Palestinian economy works under conditions of Israeli authorities, which has worked to undermine its activities through tax practices or through licensing policies of confiscation of equipment or through control of crossing and other borders. However, despite the difficult conditions of the Palestinian territory, the Palestinian economy witnessed growth rates.
As the average real growth in real GDP of 9.7 per year during the period of 1968-1979 and is due to an opening of the Israeli markets to Palestinian labor. In addition to increasing the flow of settlements of Palestinian workers in the Gulf states.
Over the construction sector were exceptional circumstances caused by the Israeli authorities and the imposition of economic security restrictions. However, the construction sector was among the most growing sectors has increased its contribution to GDP from 10% in 1972 to 21.4% in 1992 (Makhoul and Attiyane, 2003).
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2.8.2. Construction Sector in the Period During 1993 - 2000
The Palestinian economy has witnessed radical changes after 1993 as a result of the settlement that took place in the Palestinian territories and created settlement opportunities and great challenges to the Palestinian economy during that period. This increased interest in the contracting sector so as to meet the basic needs of the infrastructure on the one hand and in turn increased the demand for housing on the other hand. This led to the attention of many donor countries in financing construction projects and infrastructure, having a clear impact on the construction sector. As a result of the growing demand for construction work as the value of the direct credit facilities granted has risen to this sector from 11%, with the value of 40.5 million dollar in 1996 to 12.3% with the value of 123.6 million dollar in 1999 (Abdul Karim, 2004).
As for the construction sector, due to its growth, it was able to absorb the operation of the significant labor force as the number of workers in Gaza strip has increased from 13,000 in 1993 to 15,000 in 2000 (Makhoul and Attiyane, 2003).
2.8.3. Construction Sector in the Period During 2000 - 2003
The events that followed the Jerusalem uprising in September 2000 and the siege and the closure of the gorge of Palestinian land policy in addition to the account integration of the land leveling led to the Palestinian economy so far. These events hit the construction sector heavy losses where the contribution of the construction sector decreased in GDP to about just 5% which amounted to the value of the contribution of this sector of 70 million dollars in 2002 compared to about 73 million dollars in 2001 and about 594 million dollars in 1999. The maintained workers in this sector in proportion to their level during June 2001 to 2002 to the number of employers was not more than 9,000 workers but the percentage dropped by about 93% from what it was in 1999 where the number of employees amounted to 135,000 workers . This is because the low contribution of this sector to stop new construction of houses as well as private and public institutions with the continued bombing and demolitions policy. This is in addition to the international construction projects that were stopped and did not exceed the activity of this sector due to the renovation and repair of dilapidated buildings (Joint Arab Economic Reports, 2003).
22 2.9. Risk in the Companies
When the company revenue is more than its commitment, meaning that the net capital of more than zero but the company is unable to meet its financial obligations such as payment of interest or essential payment of debts or payment of rent in the sense that the cash flow is incompetent to meet their needs in a timely manner.
In other words, that the problem of maturity where the maturity date of the obligations is faster than the date of maturity for enterprise revenue. This also includes the obligation of the company assets are more than it can handle resulting in the net capital being less than zero (Pringle and Harris, 1990).
Some know it as a process and the status of it in terms of being practical as it is not the product of the moment but the result of many reasons, a chain reaction across a time period varying in length which led to a situation in which the project is unable to repay its obligations and obtain new commitment. In addition to also returning to it what was invested at the very least, to restore fiscal balance monetarily or operationally ( Khudairy, 2003).
2.9.1. Economic Failure
In this case, the company can't achieve a reasonable return on their investment, an adequate profit or when the net capital is negative. That's when the book value of liabilities and liabilities of the company will be more than the book value of the company’s assets (Ross and et al, 1999).
2.9.2. Financial Failure
In this case, a company can't pay off its debts to creditors and be solvent, such as not paying bills.
Some have gone to the destination between financial distresses on the grounds that the case of financial distress precedes the financial failure. However, the company may not necessarily lead to and rely on this distinction to the use of standard financial flexibility (Schall and Haley, 2000).
23 2.9.3. Bankruptcy
It is a case in which the institution cannot pay its debts and be waived on the origin investment. In such a case, it is delivered to the judicial administration on legal action to liquidate or reorganize the business and may end up transferring some or all of the company's assets to creditors (Schall and Haley, 2000).
2.10. Reasons of Risks in Companies Lack of capital.
A glitch in the system cost. Weakness in control.
Lack of participants and contribution.
Foreign government under the law does not provide protection for foreign companies.
Fluctuation as cases of integration of technological changes.
Operations fraud and such decisions in the business (Shaaban, 1998). Lack of management for the financial situation since the beginning. The project is financially too rich resulting in a loss.
Management is unable to provide adequate support.
The definition is unsuitable for tasks and functions that are required. Technology and techniques used are inappropriate.
Final results of the project planned are unreasonable.
The chosen team has bad teamwork and does not have the flexibility and the ability to change what is wrong in tests.
Wrong choice for the selection of the managing Director (Avots, 1969).
Research finds that the failure of the construction sector in Gaza strip in companies during the 2006-2015 for the following reasons:
1. The inability to recover amounts quickly and effectively. 2. Frequent closures and blockades of Palestinian areas. 3. Dependence on banks and pay back with high-interest rates.
24 4. The lack of enough capital.
5. Weak cash flow management.
6. Lack of experience in the field of work. 7. The divide of Gaza strip into regions.
8. The absence of laws and regulations for the construction industry. 9. Low profits due to competition.
10. Awarded the tender to the lowest prices. 11. Lack of experience in the field of contracts. 2.11. Kinds of Risk in Construction Projects
2.11.1. Risk Management
Risk management is the common denominator in most of the troubled companies, where the management is unable to provide adequate support to employees even if the staff is highly efficient. Even if the workforce has excellent skills, they will find it difficult to complete their work without the support of the management as well as testing. The ‘sinners’, or people in the organization without skill or bad decision making, during the project, may be the cause of the failure of the project, where the leader and organizer have to make decisions based on limited information available (Avots, 1969).
2.11.2. Financial Risk
Financial risk is one of the most important risks that could lead to the faltering of a company and bringing it to bankruptcy, particularly the lack of proportionality between capital and loans, which means an imbalance in the financing structure of the project. This leads to the projects’ debts negatively affecting the results of its operations and the emergence of major problems that accumulate with the loss of liquidity and inability for solvency in the different direction. In addition to its creditors being unhappy due to the lack of continuity with the terms of the agreement which does not fit with what is achieved in revenue. These burdens are directed to the assistance of the project technically, administratively prohibiting expenses of board members and the presence of some of the many cases of abuse in the investment cost of the project (Hamzawi, 1997).
